Impact Assessments. March 2008

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Impact Assessments

March 2008

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March 2008

Impact Assessments

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Consultation Stage

1 Impact Assessment of making changes to the collection of National Insurance Contributions from the self-employed

2 Impact Assessment of The Saving Gateway

Final Stage

3 Impact Assessment of provision to allow businesses to write off small amounts of unrelieved expenditure on plant and machinery

4 Impact Assessment of changes to R&D tax credits to ensure State aid compatibility

5 Impact Assessment of the extension of Corporation Tax (CT) loss carry back

6 Impact Assessment of change to Petroleum Revenue Tax obligations 7 Impact Assessment of Extending 100% First Year Capital Allowances

(FYA) within ring fence trades

8 Impact Assessment of the extension of Corporation Tax (CT) post cessation period

9 Impact Assessment of Reduction of Administrative Burden of Stamp Duty 10 Impact Assessment of the review of the Insurance Premium Tax (IPT) tax

representative provisions

11 Impact Assessment of Reduction of Administrative Burden of Stamp Duty Land Tax

12 Impact Assessment of changes to indirect taxes Voluntary Disclosure arrangements

13 Impact Assessment of repeal of obsolete anti-avoidance legislation 14 Impact Assessment of the decision to allow specified Northern Rock

customers to reinvest withdrawn ISA funds

15 Impact Assessment of Technical Improvements for Taxation of Pension Schemes

16 Impact Assessment of widening the scope of authorised payments that may be made by registered pension schemes

17 Impact Assessment of Property Authorised Investment Funds

18 Impact Assessment of climate change levy accounting document (CCLAD) simplification

19 Impact Assessment of the withdrawal of the VAT: Staff Hire Concession

Page

3 13 19 27 37 43 49 55 61 69 77 85 103 109 115 125 135 141 147

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Summary: Intervention & Options

Department /Agency:

HMRC

Title:

Impact Assessment of making changes to the collection of

National Insurance Contributions from the self-employed

Stage: Consultation Version: Final Date: 29 February 2008

Related Publications: Consultation Paper – Collection of National Insurance Contributions from the self employed

Available to view or download at:

http://www.hmrc.gov.uk/consult

Contact for enquiries: Paul Hannick Telephone: 0207 147 2846

What is the problem under consideration? Why is government intervention necessary?

The Government’s report, ‘Income tax and national insurance alignment: an evidence based assessment’ rejected a merging of Classes 2 and 4 but did commit HMRC to consult on ways of improving the processes for collecting contributions from the self-employed. Currently the self-employed pay two classes of NICs through two different processes. The different processes have the potential to create uncertainty and

confusion. We think improvements may be possible by bringing the Class 2 process into closer alignment with the Class 4 process (within Self Assessment).

What are the policy objectives and the intended effects?

To simplify the processes for the self employed to understand and meet their NICs liabilities. Any options that emerge from the consultation process will need to take account of costs for the self employed and HMRC, and of the need for any legislative changes that might be required. They will also need to be compatible with establishing entitlement to contributory based benefits.

We believe that the effects of the three options set out below arise in the following main areas: 1. Taxpayers will have an improved understanding of their NICs 2 obligations.

2. Administrative burdens will be reduced through option 2.

3. Implementing all three options could lead to a reduction in the amount of irrecoverable NICs 2 debts. 4. All three options could lead to cost savings for HMRC.

What policy options have been considered? Please justify any preferred option. We have currently identified three main areas where improvements may be possible 1. Advising contributors of Class 2 arrears through their Self Assessment statements

2. Reducing the number of payment dates for Class 2 contributions and/or aligning payment dates with those used for Self Assessment

3. Aligning the consequences for late paid Class 2 contributions with those that currently exist for Class 4 contributions

When will the policy be reviewed to establish the actual costs and benefits and the achievement of the desired effects?

To be confirmed once preferred option(s) established

Ministerial Sign-offFor consultation stage Impact Assessments:

I have read the Impact Assessment and I am satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impact of the leading options. Signed by the responsible Minister:

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Summary: Analysis & Evidence

Policy Option: 1 Description: Including Class 2 arrears within Self Assessment statements

ANNUAL COSTS

One-off(Transition) Yrs

£ 11.2 million

Average Annual Cost

(excluding one-off)

Description and scale of key monetised costs by ‘main affected groups’

The costs identified are HMRC costs incurred in establishing new IT links and running costs. There may be some costs for taxpayers and their representatives in familiarising themselves with the new arrangements. Any time spent is expected to be insignificant.

£ 360,000 Total Cost (PV) £

COSTS

Other key non-monetised costs by ‘main affected groups’ No non-monetised costs have been identified.

ANNUAL BENEFITS

One-off Yrs

£ Nil

Average Annual Benefit

(excluding one-off)

Description and scale of key monetised benefits by ‘main affected groups’

We have not identified any monetised benefits for businesses associated with this option. Benefits for HMRC arise from automating what is currently a manual process.

£ 600,000 Total Benefit (PV) £

BENEFITS

Other key non-monetised benefits by ‘main affected groups’ It is believed that providing such information would help to reduce confusion as to whether liabilities for Class 2 had been met, by making arrears clearer.

Key Assumptions/Sensitivities/Risks

We estimate that this option will reduce the level of irrecoverable class 2 debt by £3.5 million pa (see evidence base for more detailed explanation of this estimate).

Price Base

Year 2007 Time Period Years Net Benefit Range (NPV)

£ NET BENEFIT

(NPV Best estimate)

£

What is the geographic coverage of the policy/option? UK

On what date will the policy be implemented? Not yet known

Which organisation(s) will enforce the policy? HMRC

What is the total annual cost of enforcement for these organisations? £ Business as usual

Does enforcement comply with Hampton principles? Yes

Will implementation go beyond minimum EU requirements? N/A

What is the value of the proposed offsetting measure per year? £ 0 What is the value of changes in greenhouse gas emissions? £ 0 Will the proposal have a significant impact on competition? No Annual cost (£-£) per organisation

(excluding one-off) MicroNil SmallNil MediumNil LargeNil

Are any of these organisations exempt? No No N/A N/A

Impact on Admin Burdens Baseline (2005 Prices) (Increase - Decrease)

Increase of £Nil Decrease of £Nil Net Impact £Nil

Key: Annual costs and benefits: (Net) Present

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Summary: Analysis & Evidence

Policy Option: 2 Description: Reducing the number of payment dates and/or aligning payment dates more closely between Class 2 and 4

ANNUAL COSTS

£ 12.7 million

(excluding one-off)

Description and scale of key monetised costs by ‘main

affected groups’ The IT and consultancy costs for HMRC to implement option 2 include the costs required by Option 1 (a one-off £11.2m, and ongoing £360,000). Further one-off costs of £1.5m million, and ongoing costs of

£90,000, allow the additional implementation of option 2. This means the costs shown here are estimated standalone costs. If option 1 is implemented, the incremental costs of option 2 are limited to the £1.5m one-off costs and the £90,000 ongoing cost. There may be some costs for taxpayers and their representatives in familiarising themselves with the new arrangements but this is expected to be insignificant.

£ 450,000 Total Cost (PV) £

COSTS

Other key non-monetised costs by ‘main affected groups’ None identified.

ANNUAL BENEFITS

One-off Yrs

£

(excluding one-off)

This measure only relates to the self employed. The monetised benefit for the self employed is based upon a reduction to two payment events covering SA tax, Class 2 and 4 producing a £9m benefit in current prices. Savings for HMRC in processing estimated at £4.7 million.

£ 13.7 million Total Benefit (PV) £

BENEFITS

Other key non-monetised benefits by ‘main affected groups’ None identified.

Key Assumptions/Sensitivities/Risks A reduction of around 3.7 million customer transactions (based on 2006/07 figures) by combining SA and Class 2 payments. HMRC benefits arise from reduced contact from customers querying quarterly bills. Estimated reduction of irrecoverable class 2 debt of £3.5 million pa (see evidence base for more detailed explanation of this estimate). Making the period of liability longer and delaying payment could result in a loss of interest to HMRC compared to the current situation. The maximum interest loss is estimated at £1.7 million per annum. Further detail is given in the evidence base. Assuming option 1 is implemented, further one-off costs of £3 million, and ongoing costs of £180,000, allow the additional implementation of options 2 and 3. For the purposes of this impact assessment these further costs have been equally split between options 2 and 3.

Price Base

Year 2007 Time Period Years Net Benefit Range £ (NPV) NET BENEFIT£ (NPV Best estimate)

Impact on Admin Burdens Baseline (2005 Prices) Decrease

Increase of £ Nil Decrease of £ 8 million Net Impact £8 million

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Summary: Analysis & Evidence

Policy Option: 3 Description: Changing the consequences for late payment of Class 2 contributions

ANNUAL COSTS

£12.7 million

(excluding one-off)

affected groups’ The IT and consultancy costs for HMRC to implement option 3 include the costs required by Option 1 (a one-off £11.2m, and ongoing £360,000). Further one-off costs of £1.5m million, and ongoing costs of

£90,000, allow the additional implementation of option 2. This means the costs shown here are estimated standalone costs. If option 1 is implemented, the incremental costs of option 2 are limited to the £1.5m one-off costs and the £90,000 ongoing cost. There may be some costs for taxpayers and their representatives in familiarising themselves with the new arrangements but this is expected to be insignificant.

£ 450,000 Total Cost (PV) £

COSTS

Other key non-monetised costs by ‘main affected groups’ None identified.

ANNUAL BENEFITS

One-off Yrs

£ Nil

(excluding one-off)

We have not identified any monetised benefits for businesses associated with this option.

There is a benefit to HMRC arising from removing a manual process to update Class 2 debts when the rate changes.

£ 600,000 Total Benefit (PV) £

BENEFITS

Other key non-monetised benefits by ‘main affected groups’ None identified. Key Assumptions/Sensitivities/Risks

Estimated reduction of irrecoverable class 2 NICs debt of £1 million pa (see evidence base for more detailed explanation of this estimate). Assuming option 1 is implemented, further one-off costs of £3 million, and ongoing costs of £180,000, allow the additional implementation of options 2 and 3. For the purposes of this impact assessment these further costs have been equally split between options 2 and 3.

Price Base Year 2007

Time Period Years

Net Benefit Range (NPV)

£

NET BENEFIT(NPV Best estimate)

£

Increase of £ Nil Decrease of £ Nil Net Impact £ Nil

Key: Annual costs and benefits: (Net) Present

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Evidence Base (for summary sheets)

Rationale for intervention

Every person who is over the age of 16, but below pensionable age who is self-employed is liable to pay Class 2 NICs for each week of self employment (currently at a rate of £2.20 a week) unless they apply for and are granted Small Earnings Exception (SEE). Additionally Class 4 contributions are payable where annual profits are equal to or above the Lower Profits Limit, currently £5225.

Different processes exist for the collection of Class 2 and 4 NICs. Class 2 contributions can be paid either by direct debit or on receipt of a quarterly bill (issued soon after the end of March, June, September and December). The quarterly bill includes the current quarter’s liability and any arrears.

Class 4 contributions are paid through the Self Assessment (SA) process and a payment is due as part of the SA liability due on 31st_{July and 31}st_{January unless the person is below the minimum payment on} account level threshold – currently where the total liability for the previous year (tax and NICs) is less than £500, in which case a single payment is made on 31st_{January. The £500 level will be lifted to £1,000 from} 6th April 2009.

Policy objective

The government aims to identify and consider changes to current processes that will simplify and improve the collection of NICs from the self employed. It appears that the difficulties in the process are focused around the Class 2 process and the options for change concentrate in that area.

Policy Options Considered

Feedback from the self employed and their representatives has identified concerns with the current processes, so we have not considered a ‘no change’ option as clearly this would not achieve the improvements sought.

It is important to note that whilst policy options 1 and 2 are closely related, all three options can be viewed as independent measures which could be implemented alone. From this perspective we would consider option 1 as simply a way to address arrears, option 2 as a way to simplify future payments, and option 3 as a new framework for the consequence for late payment. However, the costs do not add in a

straightforward manner. If all measures were to be adopted the total one-off costs would be estimated as £14.2m (£11.2m for option 1, plus £3m for options 2 and 3), with total ongoing costs estimated as £540k (£360k for option 1, plus a further £180k for options 2 and 3).

Policy Option 1: Including Class 2 arrears within Self Assessment statements

We have identified that there is a proportion of the self employed who are compliant with respect to their SA liabilities but get into arrears with their Class 2 liabilities. Given the fact that Class 2 liabilities are usually relatively small sums compared to SA liabilities, and that benefit entitlements including State Pension result from the payment of Class 2 contributions, we believe that, for some at least, it is likely to arise from a mistaken belief that all their liabilities are met through their self assessment payments.

We believe that the timing of the Class 2 quarterly bills, particularly those for the quarters ending June and December, may get confused with the SA statements, which include Class 4 liabilities. Indeed information from our contact centres suggests this.

Therefore, we have considered including within the SA statement an additional line of information showing any Class 2 arrears at the time the statement is produced. In the case of a statement ahead of a payment due on 31st_{January the statement would include any arrears of Class 2 up until the end of the preceding} September. It would not include arrears for the quarter to December as at the time of the issue of the statement the December quarter would not yet be in arrears. For example a statement requiring payment by 31st_{January could be issued in early January, but the December’s quarterly bill should be issued within} 14 days of the end of the quarter and the contributor has 28 days in which to pay. Therefore the

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Business Costs and Benefits

We have not identified any significant costs to business. There may be some costs for taxpayers and their representatives in familiarising themselves with the new arrangements, but this is expected to be negligible. We believe that there would be benefits to business through a better understanding of whether their Class 2 liabilities have been met.

HMRC Costs and Benefits

As this option would require the creation of links between the computer system that records Class 2 liabilities and payments (NIRS2) and the one that records liabilities and payments for Class 4 (CESA) there would be significant IT and consultancy development costs estimated at £11.2 million. The establishment of these links also allows Options 2 and 3 to be developed with some additional costs specific to those options. There are also on-going costs estimated at £360,000 a year.

Savings for HMRC would accrue from the automation of what is currently a manual process of drawing together of information on Class 2 and wider SA debts, with an estimated saving of £600,000 pa.

Exchequer Yield/Costs

We believe that the changes outlined in these three options can together lead to a reduction in the irrecoverable Class 2 debt (our latest available estimate for which is 5%), to a level closer to the SA irrecoverable level of 1%. We believe almost all of the additional irrecoverable debt for Class 2 arises from those receiving Quarterly Bills (this will include some people who take out a direct debit which

subsequently fails and is not promptly re-instated – following which they are issued with Quarterly Bills). On the assumption that we can reduce it to 2.5% an annual additional reduction in NICs Class 2 debt of £8 million a year will be achieved. We believe such an assumption is reasonable based upon our view that there is an element of those non-compliant for Class 2 who are willing to comply but are confused as to their position. We believe that most of the improvement in yield will arise from Options 1 & 2. We have therefore attributed the bulk of this improvement (£7 million) to Options 1 & 2 and split it evenly (£3.5 million attributable to each of these options). The remaining £1 million has been attributed to Option 3.

Policy Option 2: Reducing the number of payment dates and/or aligning payment due

dates more closely between Class 2 and 4

HMRC encourages the newly registered self employed to opt to pay their Class 2 liabilities by direct debit. When selected this is beneficial for both HMRC and the individual, as once the direct debit is set up there are much lower compliance costs than around quarterly bills. Those who do not opt to pay by direct debit are notified of their liability by quarterly bills. We have mentioned above the possibility of confusion between the quarterly bills and the SA statements.

Where the contributor understands their liabilities and pays their Class 2 and SA liabilities on time they will make a total of five or six payments (depending upon whether they need to make payments on account). This consists of four quarterly Class 2 payments and one or two SA payments.

Each of these payment ‘events’ carries a cost to the taxpayer, therefore a reduction in the number of separate payments required, or alignment of when liabilities are due would reduce the admin burdens to the business.

A finished proposal in terms of which payment dates might be altered is not set out below but the potential benefits of reducing the number of payment ‘events’ are outlined.

Business costs and benefits

There may be some costs for taxpayers and their representatives in familiarising themselves with the new arrangements, but this is expected to be insignificant. We believe that there would be benefits to business through a better understanding of whether their Class 2 liabilities have been met.

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We also expect there would be savings in the admin burdens for business for any reductions in the need for separate payments. We estimate that the current number of Class 2 quarterly payments is 3.7 million each year. 90% of these are paid by cheque in the post or cheque/cash over a bank of Post Office counter and (on the basis of the standard cost model) have admin costs of £2.35 per transaction. The remainder are paid online with an estimated cost of £1 per transaction. Therefore, if we remove the need for these payments, by combining Class 2 payments with SA payments (by making Class 2 liability six monthly rather than quarterly), we would expect an admin burden reduction of £9 million (in current prices).

HMRC costs and benefits

This option would require changes to the NIRS2 system with respect to the timing and issue of bills. It would also depend upon the links required in Option 1. We estimate that additional IT development costs, for Options 2 & 3, to be in the region of £3 million, additional to those core costs identified for Option 1. Additional on-going costs for Options 2 and 3 are estimated at £180,000. These have been divided evenly for Options 2 and 3. As the consultation progresses, and once the final shape of any changes are clear, we expect to be able to refine the costs and benefits further.

Any reduction in the number of quarterly bills issued would produce savings in printing and postage – up to a maximum of £1.3 million a year if it were possible to incorporate all of the Class 2 liabilities into the SA statements.

It would also be possible to make savings in the processing and contact centres – up to a maximum of £3.4 million a year, based upon the reduction of follow up contact when quarterly bills are issued.

Exchequer Yield/Cost

As noted in option 1, we believe that the rationalisation of payment dates for Class 2 would support the aim of getting irrecoverable Class 2 debt closer to that for Class 4, resulting in a reduction in irrecoverable Class 2 NICs debt across all three options of £8 million pa. The reduction attributable to this option has been calculated at £3.5 million for the reasons set out in the corresponding section for Option 1.

Depending upon any changes that might be made there is a potential for a loss of interest within tax year. We do not anticipate that large numbers of contributors would stop paying by direct debit. For those currently paying this way we believe it works efficiently, and any benefit they could derive from delaying payment would be very minor. Assuming no change to the numbers paying by direct debit, we can examine the impact of quarterly payments being paid less frequently (for example if it was possible to establish a six month due date) and this provides us with a maximum interest loss of £1.7 million pa.

Policy Option 3: Changing the consequences for late payment of Class 2 contributions

Consequences for late payment of Class 2 NICs start one year after the end of the tax year in which the contributions were due. The contributions are payable at the highest rate between the year when the contributions were due, and the one in which they are paid. As rates typically increase, this will tend to be the rate in force at the time of payment. By way of example, contributions paid in tax year 2007/08 for the tax year 2005/06 would be payable at the current rate of £2.20 a week, rather than the 2005/06 rate of £2.10 a week.

Class 4 contributions paid late are charged with interest, along with other SA liabilities. For example the interest rate charged from 8th_{January 2008 became 7.5% per annum. Interest is charged at an annual rate} on a daily basis from the date when it was due until the date payment is made.

In addition a surcharge of 5% is applied when the balancing payment for the SA return has not been paid within 28 days of the due date and a further 5% surcharge on any balance still unpaid six months after the due date. We have only considered the application of interest to outstanding Class 2 balances in our work so far. As part of the review of Powers, Deterrents and Safeguards, penalties for late payment are also being reviewed across the range of HMRC’s responsibilities including NICs. Any changes will be subject to consultation.

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Clearly both the Class 2 contribution rate and interest rates change over time. We have not made any assumptions about the future rates of either Class 2 contributions or interest charges. The driver here is an attempt to help contributors understand the basis for the extra they have to pay as a consequence of late payment. This may particularly be a factor where a contributor is in arrears in respect of both Class 2 contributions and their wider SA liabilities. They will not have to carry out two separate forms of calculation if they wish to check the accuracy of the charges.

Business costs and benefits

We anticipate that those contributors in arrears for both Class 2 and SA liabilities will find a single form of interest calculation easier to understand and verify than two separate forms of calculation. There are likely to be minor costs associated with becoming familiar with the changed arrangements.

HMRC costs and benefits

This option would require changes to allow the calculation of interest charges for Class 2 arrears. It would also depend upon the links required in Option 1. We estimate that additional IT development costs, for Options 2 & 3, to be in the region of £3 million, additional to those core costs identified for Option 1. Additional on-going costs for Options 2 and 3 are estimated at £180,000. These have been divided evenly for Options 2 and 3. As the consultation progresses, and once the final shape of any changes are clear, we expect to be able to refine the costs and benefits further.

There would be savings for HMRC in staff costs, as currently it costs £600,000 to manually update cases where debt management action has started when the rate of Class 2 contributions changes.

Exchequer Yield/Cost

We believe that clearer consequences for late paid Class 2 contributions would support the aim of getting irrecoverable Class 2 debt closer to that for Class 4. For the reasons set out in the corresponding section for Option 1 we expect the reduction in irrecoverable class 2 NICs debt attributable to this Option to be £1 million.

Combining the options

We believe that the options compliment one another, and that whilst capable of separate evaluation, the significant IT costs in linking systems means that the best cost/benefit analysis arises if all three options, or at least options 1 and 2 are adopted.

Potential Impacts of proposals

Competition

We have considered the impact and conclude that there are unlikely to be any effects.

Small Firms

These measures will impact most significantly on small and medium sized enterprises, though we anticipate the effects will be positive.

Human Rights

We have not identified any issues that impact on Human Rights.

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Specific Impact Tests: Checklist

Use the table below to demonstrate how broadly you have considered the potential impacts of your policy options.

Ensure that the results of any tests that impact on the cost-benefit analysis are contained within the main evidence base; other results may be annexed.

Type of testing undertaken

Results in

Evidence Base?

Results annexed?

Competition Assessment Yes No

Small Firms Impact Test Yes No

Legal Aid No No

Sustainable Development No No

Carbon Assessment No No

Other Environment No No

Health Impact Assessment No No

Race Equality No No

Disability Equality No No

Gender Equality No No

Human Rights Yes No

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Summary: Intervention & Options

HM Treasury

Title:

Impact Assessment of The Saving Gateway

Stage: Consultation Version: 1 Date: 12 March 2008

Related Publications: “The Modernisation of Britain's Tax and Benefit System" (Numbers Eight and Nine, Published April 2001 and November 2001)

Available to view or download at: http://www.hm-treasury.gov.uk

Contact for enquiries: Miranda Worthington Telephone: 020 7270 4698

Savings are important in providing people with independence throughout their lives and security if things go wrong. The Government has introduced Individual Savings Accounts (ISAs) to develop and extend the saving habit and ensure a fairer distribution of tax relief. The Child Trust Fund (CTF), introduced in April 2005, seeks to promote saving and financial education and to ensure that in future all young people have a financial asset at 18. Personal Accounts, for pension saving, to be introduced in 2012, will promote saving for retirement. The Saving Gateway will sit alongside these initiatives to promote saving for those on lower incomes.

What are the policy objectives and the intended effects? The objectives of the Saving Gateway are to:

• kick-start a saving habit amongst people on lower incomes by providing a strong incentive to save through matching (a government contribution for each pound saved); and

• promote financial inclusion through encouraging people to engage with mainstream financial services.

What policy options have been considered? Please justify any preferred option. 1. Do nothing.

2. The Saving Gateway - the Saving Gateway has been piloted twice with positive results. The Saving Gateway pilots were successful in promoting saving and financial inclusion. 1,500 people participated in the first pilot, and match rates were set at £1:£1. The second pilot ran with over 22,000 participants and tested different match rates and monthly contribution limits.

When will the policy be reviewed to establish the actual costs and benefits and the achievement of the desired effects? The scheme will be monitored as the programme is implemented and its impact reviewed once sufficient evidence has been collected. Compliance costs are routinely reviewed after one to three years.

Ministerial Sign-offFor Consultation stage Impact Assessments:

I have read the Impact Assessment and I am satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impact of the leading options. Signed by the responsible Minister:

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Summary: Analysis & Evidence

Policy Option: Description: Introduce the Savings Gateway

ANNUAL COSTS

£

(excluding one-off)

affected groups’. The cost to Government will depend on the final parameters of the scheme. Financial institutions offering the Saving Gateway will incur the costs of administering accounts. Further consultation will help to form a picture of likely costs to providers.

£ Total Cost (PV) £

COSTS

Other key non-monetised costs by ‘main affected groups’ None

ANNUAL BENEFITS

One-off Yrs

£

(excluding one-off)

Description and scale of key monetised benefits by ‘main

affected groups’. Benefits will be in terms of Saving Gateway participants developing a saving habit, building a stock of savings, and being brought into contact with mainstream financial services. These are difficult to quantify, though we expect the total benefits to outweigh the total costs.

£ Total Benefit (PV) £ Positive

BENEFITS

Other key non-monetised benefits by ‘main affected groups’ The Saving Gateway aims to help kick-start a saving habit and promote financial inclusion. The scheme will also provide a regulated saving environment for individuals on low incomes and there will be knock-on effects on financial capability through learning by doing.

The Exchequer costs of the Saving Gateway are dependent on the final design of the accounts.

Price Base

Year 2008 Time Period Years Net Benefit Range (NPV)

£ NET BENEFIT

(NPV Best estimate)

£ Small, Positive

On what date will the policy be implemented? 2010

What is the total annual cost of enforcement for these organisations? £ N/A

Will implementation go beyond minimum EU requirements? No

(excluding one-off) Micro Small Medium Large

Increase of £ see p.5 Decrease of £ see p.5 Net Impact £see p.5

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Evidence Base (for summary sheets)

Savings are important in providing people with independence throughout their lives and security if things go wrong. Since 1997, the Government has aimed to support saving and asset ownership for all from

childhood, through working life and into retirement. The Government has introduced Individual Savings Accounts which seek to develop and extend the saving habit and ensure a fairer distribution of tax relief. The Government has also introduced the Child Trust Fund, which seeks to promote saving and financial education and will ensure that in future all young people have a financial asset at the age of 18. Personal Accounts, for pension saving, will be introduced in 2012 and will promote saving for retirement. The Saving Gateway will sit alongside these initiatives to promote saving for those on lower incomes.

The objectives of the Saving Gateway are to:

• kick-start a saving habit amongst people on lower incomes by providing a strong incentive to save through matching (a government contribution for each pound saved); and

• promote financial inclusion through encouraging people to engage with mainstream financial services.

Consultation to date and Pilots

The Government has consulted on the Saving Gateway twice, these consultation documents are available on the HM Treasury website (http://www.hm-treasury.gov.uk/):

1. Saving and Assets for All: The Modernisation of Britain’s Tax and Benefit System, No. 8, April 2001; and

2. Delivering Saving and Assets: The Modernisation of Britain’s Tax and Benefit System, No. 9, November 2001.

The scheme has also been piloted twice. Complete reports and analysis of these pilots are also available on the HM Treasury website:

1. Incentives to save: encouraging saving among low-income households, Bristol University – Personal Finance Research Centre, March 2005; and

2. Final evaluation of the Saving Gateway 2 Pilot: Main Report, Institute for Fiscal Studies & Ipsos MORI Social Research Institute, May 2007).

The Saving Gateway pilots were delivered in partnership with the-then Department for Education and Skills (DfES), with Halifax (now HBOS plc) providing the banking facilities. The first pilot ran from August 2002 to November 2004, with individuals’ accounts open for an 18 month period, around 1,500 participants took part. The pilot covered five areas: Cambridge; East London; Hull; Cumbria and Manchester. People living in these areas were eligible to open an account if they were of working age (16 to 65) and if they had:

• household earnings less than £15k a year;

• individual earnings less than £11k a year; or were • out of work or receiving benefits.

Individuals could save up to a limit of £25 per month into the account and up to a maximum of £375 overall for which they received a £1 to £1 match when the account matured. The final evaluation of the first pilot was published in March 2005.

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A second, larger Saving Gateway pilot ran in the same five locations as the first pilot, as well as an additional area, South Yorkshire. The pilot started in March 2005, with accounts open for 18 months (as in the first pilot). Around 22,000 accounts were opened. The second pilot was open to a wider income group. Individuals were eligible for the second pilot if they were of working age (16 to 65) and had:

• household incomes less than £50k a year;

• individual incomes less than £25k a year; or were • out of work or receiving benefits.

The pilot tested alternative match rates (20p, 50p or £1 match for every £1 saved); different monthly contribution limits (£25, £50 or £125); the effect of an initial endowment (£50); and opt-in to voluntary financial education. The final evaluation of the second pilot was published in May 2007.

The pilots point to the success of matching as a targeted incentive for lower income savers. Other key findings from the pilots were that: the Saving Gateway generated both new savers and new saving amongst existing savers; and that the scheme brought individuals into contact with mainstream financial institutions for the first time.

Eligible Population

Building on the results of the pilots, the Government will offer Saving Gateway accounts to individuals who are in receipt of one or more qualifying benefits or tax credits. The total estimated eligible population is around 8 million individuals. The full list of qualifying benefits/tax credits is as follows:

• Working Tax Credit;

• Child Tax Credit paid at the maximum rate; • Income Support;

• Incapacity Benefit or Employment Support Allowance; • Severe Disablement Allowance; and

• Jobseeker’s Allowance.

Admin Burdens

Providers will only incur costs in relation to the Saving Gateway if they opt to provide accounts to eligible people.

Those financial organisations that opt to provide Savings Gateway accounts will incur a cost in setting up and administering Saving Gateway accounts. The detailed statutory requirements for Saving Gateway providers are the subject of consultation. Subject to consultation responses, the Government is minded to require potential providers to gain approval for operating Saving Gateway accounts from HMRC. Once approved, providers will also be required to:

• submit a monthly return containing details of all new accounts opened;

• submit a monthly return of accounts that have matured. For compliance purposes, in addition to the total amount of match payment made, this return will contain a record of the amount of match funding paid to each participant;

• send a Saving Gateway account statement to each customer at least quarterly;

• allow customers to withdraw money deposited, and to pay interest on credit balances held in Saving Gateway accounts;

• pay a return on credit balances held in Saving Gateway accounts; and

•

keep (and hold for 4 years) records to demonstrate that Saving Gateway accounts are being operated in accordance with the statutory rules.

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Providers will also be subject to periodic audit by HMRC to ensure accounts are run in accordance with the rules of the scheme. However, to minimise this burden, providers may be able to request that HMRC undertake integrated audits for Saving Gateway, Child Trust Fund and ISA.

The Government will be consulting with the financial services industry on the total cost to the market of meeting the statutory requirements of the Saving Gateway. This further consultation should enable the industry administration burdens to be estimated in time for the implementation stage Impact Assessment. The Government would welcome evidence from industry to aid with quantifying this.

Competition Assessment

The Saving Gateway offers financial institutions a new saving product to sell to eligible individuals. It is not expected to have any significant impact on competition in the savings product market.

Small Firms Impact Test

The Saving Gateway will potentially be delivered through a range of existing providers that wish to take part in the programme. The Government is minded to require that returns and claims from providers be sent in electronic form. However, this is already the case for providers of the Child Trust Fund and gradual phasing of electronic filing of Self Assessment has already begun. The implementation of the Saving Gateway is unlikely to impact significantly on small providers.

Gender Equality

The benefits and tax credits from which the Government will passport eligibility to the Saving Gateway are offered to both men and women.

Disability Equality

The Government will offer the Saving Gateway to individuals claiming the benefits and tax credits listed above. The qualifying benefits and credits include Severe Disablement Allowance and Incapacity Benefit.

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Specific Impact Tests: Checklist

Type of testing undertaken

Results in

Evidence Base?

Results annexed?

Legal Aid No No

Race Equality No No

Disability Equality Yes No

Gender Equality Yes No

Human Rights No No

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Summary: Intervention & Options

HM Treasury

Title:

Impact Assessment of provision to allow businesses to

write off small amounts of unrelieved expenditure on

plant and machinery

Stage: Final Proposal stage Version: Date: 14 February 2008

Related Publications: Business tax reform: capital allowances changes consultation document

http://www.hm-treasury.gov.uk/consultations_and_legislation/consult_fullindex.cfm

Contact for enquiries: Roze Ahmad Telephone: 0207 270 6113

Businesses have made representations to the Government to introduce a rule so they no longer need to track small amounts of unrelieved expenditure on plant and machinery to receive comparatively small amounts of tax relief, but instead can write it off when it reaches a de minimis threshold.

The measure is intended to simplify the tax system, particularly for the smallest business. It will allow them to write-off remaining expenditure in both pools of expenditure on plant and machinery, general and at the special rate, if either are £1,000 or less. The effect will be that businesses do not need to track and calculate the amount of tax relief they are due every year once the pools reach this threshold

What policy options have been considered? Please justify any preferred option. 1. No Change

2. Transitional Change 3. Permanent Change

Option 3 offers the greatest benefits to business, as where businesses occasionally invest above the limit of £50,000 for the new Annual Investment Allowance (AIA) (which will allow for businesses to write off all of their expenditure in the year in which it is incurred) a permanent measure would allow businesses to write of the excess when it reaches the £1000 threshold.

It also caters for businesses who are just above the threshold in the year the measure is introduced. Over time, their pools will fall below £1000 and they will be able to take advantage of this measure

When will the policy be reviewed to establish the actual costs and benefits and the achievement of the

desired effects?

1 – 3 years after implementation the Government will review the compliance cost impact of the

measure.

Ministerial Sign-offFor Final Proposal stage Impact Assessments: I have read the Impact Assessment and I am satisfied that (a) it represents a fair and reasonable view of the expected costs, benefits and impact of the policy, and (b) the benefits justify the costs.

Signed by the responsible Minister:

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Summary: Analysis & Evidence

Policy Option: No Change

Description: No change to current policy. Businesses unable to clear legacy small capital allowance pools

ANNUAL COSTS

£ Nil

(excluding one-off)

In a do nothing scenario, there are no additional costs or benefits to business beyond those included in the admin burdens baseline.

£ Nil Total Cost (PV) £ Nil

COSTS

Other key non-monetised costs by ‘main affected groups’ Nil

ANNUAL BENEFITS

One-off Yrs

£ Nil

(excluding one-off)

£ Nil Total Benefit (PV) £ Nil

BENEFITS

Other key non-monetised benefits by ‘main affected groups’ Nil

Key Assumptions/Sensitivities/Risks No change from current system.

Price Base

Year Time Period Years Net Benefit Range (NPV)

£ N/A NET BENEFIT

(NPV Best estimate)

£ N/A

On what date will the policy be implemented? N/A

What is the total annual cost of enforcement for these organisations? £

(excluding one-off) Micro£0 Small£0 Medium£0 Large£0

Are any of these organisations exempt? N/A N/A N/A N/A

Increase of £ N/A Decrease of £ N/A Net Impact £ N/A

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Summary: Analysis & Evidence

Policy Option: Option 2 Transitional Change

Description: TRANSITIONAL CHANGE: businesses are able to clear a significant number of small pools in the year in which the AIA is introduced

.

ANNUAL COSTS

£ Nil

(excluding one-off)

£ Nil Total Cost (PV) £

COSTS

Other key non-monetised costs by ‘main affected groups’ Nil

ANNUAL BENEFITS

One-off Yrs

£ Nil

(excluding one-off)

There is no one-off benefit, no HMRC operation cost implication. Benefit is a £4-5m reduction in admin burden to businesses on average.

£ 4 to 5m Total Benefit (PV) £ 5m

BENEFITS

Other key non-monetised benefits by ‘main affected groups’ Nil

Assumes a rate of growth of pools within the range that will benefit from the measure. If that rate of growth is higher, more businesses would miss out on the benefit in future years.

Price Base

Year Time Period Years Net Benefit Range (NPV)

£ NET BENEFIT

(NPV Best estimate)

£

On what date will the policy be implemented? N/A

What is the total annual cost of enforcement for these organisations? £ 0

(excluding one-off) Micro£0 Small£0 Medium£0 Large£0

Are any of these organisations exempt? N/A N/A N/A N/A

Increase of £ 0 Decrease of £ 4 to 5m Net Impact £ -4 to -5m Key: Annual costs and benefits: Constant Prices (Net) Present Value

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Summary: Analysis & Evidence

Policy Option: Option 3 Permanent change

Description: PERMANENT CHANGE: offers simplification and allows businesses to write of the excess when it reaches £1000.

ANNUAL COSTS

One-off(Transition) 1 Yr

£Nil

(excluding one-off)

£Nil Total Cost (PV) £

COSTS

Other key non-monetised costs by ‘main affected groups’

ANNUAL BENEFITS

One-off 1 Yr

£

(excluding one-off)

There is no one-off benefit, no HMRC operation cost implication. Benefit is a £6m reduction in admin burden for businesses.

£ 5 to 6m Total Benefit (PV) £

BENEFITS

Other key non-monetised benefits by ‘main affected groups’

Assumes a rate of growth of pools within the range that will benefit from the measure. If that rate of growth is higher, more businesses would benefit in future years.

Price Base Time Period Net Benefit Range (NPV)

£ NET BENEFIT

(NPV Best estimate)

£

On what date will the policy be implemented? 1 or 6 April 2008

What is the total annual cost of enforcement for these organisations? £ 0

(excluding one-off) Micro£0 Small£0 Medium£ Large£

Increase of £ 0 Decrease of £ 5 to 6m Net Impact £ -5 to -6m

Key: Annual costs and benefits: Constant Prices (Net) Present Value 22

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Evidence Base

A number of respondents to the consultation on the new features of the capital allowances system, announced in Budget 2007, commented that the introduction of the £50,000 AIA would mean that very little new expenditure would be going into the main Plant and Machinery (P&M) pool. With the reduced rate of writing-down allowances (WDA) from April 2008 (20%, down from 25%), this could mean that businesses would be making very small claims for allowances on the historic pools for some considerable number of years to come for comparatively small amounts of relief.

Whilst it is possible that such historic pools could also be reduced by the proceeds of the sale of the assets they contain, there is still a significant number of smaller businesses who only make investments in P&M occasionally and it was unlikely that for this group of smaller businesses disposal proceeds would actually wipe out the pool within the next five or so years. The respondents therefore suggested the introduction of a provision that allowed businesses to write off small pools of qualifying expenditure, which might not otherwise grow, as a transitional measure when introducing the AIA.

In the technical note published in December 2007, which summarised the responses to the earlier

consultation on the package, we noted that this suggestion had been made and committed to considering it further.

This impact assessment should be read in conjunction with the impact assessment on the wider reforms to the capital allowances system, as the benefits are closely linked with the benefits from the AIA.

http://www.hm-treasury.gov.uk/media/F/2/consult_businesstaxreform171207.pdf

Because the benefits are annual and rounded, they are presented in 2005 prices against the admin burdens baseline, rather than in present value terms.

Value of pools

HMRC have undertaken some analysis of the size of existing capital allowances pools held by both incorporated and unincorporated businesses. The value of the pools and total number of businesses in 2008/09 is set out below.

Pool value

Number of pools

£0 2,938,000

£1 to £1,000

618,000

£1 to £2,000

1,051,000

£1 to £5,000

1,739,000

£1 to £10,000

2,234,000

Over £10,000

713,000

All values

6,333,000

Given the expected flow into and out of these ranges, as business purchase plant and machinery which are added to the pools, allowances are given and disposal proceeds are deducted, we would not expect the number of businesses benefiting in any one year to be as high as indicated above.

The number of pools in the next five years of the forecasting horizon is unknown and its estimate is not straightforward. HMRC have made assumptions regarding the growth rate of tax payers, the rate at which pools are written off under the no-change scenario and the scenario under the permanent provision, and the rate at which pools change their size over time.

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Policy difference under transitional provision

A transitional measure would have the benefit of removing a significant number of historic small pools in the year in which the AIA is introduced.

The numbers of pools with a value of £1-1,000 in the baseline (no provision) and the alternative (with £1,000 transitional provision) scenarios are estimated in the table below. Their difference represents the number of businesses that would benefit from a reduction of their admin burden in claiming the allowances.

2008/9

2010/11

2012/13

2014/15

2015/16

Pool

Y1 Y2 Y3 Y4 Y5

1. Base

£1-1,000 618,000 646,000 683,000 727,000 773,000

2. Policy

£1-1,000 618,000 110,000 219,000 324,000 424,000

3.Difference

0 536,000 464,000 403,000 349,000

Policy difference under permanent provision

The table below shows the number of businesses with a pool in £1-£1,000 range, under the base case of no policy change (line 1) and the policy scenario of a £1,000 permanent provision (line 2), and their difference in the number of pools falling into the range (line 3).

2008/9

2010/11

2012/13

2014/15

2015/16

Pool

Y1 Y2 Y3 Y4 Y5

1. Base

£1-1,000 618,000 646,000 683,000 727,000 773,000

2. Policy

£1-1,000 618,000 110,000 123,000 135,000 143,000

3.Difference

0 536,000 560,000 592,000 630,000

Special rate pools

As there are a small number of special rate pools below the £1,000 level, the difference between the impact of a transitional and permanent measure is minor (100 pools difference by 2014-15).

No of pools benefiting

2008/9

2010/11

2012/13

2014/15

2015/16

Permanent

0

600

600 600 600

Transitional

0

600

600 500 500

Estimates of effects on administrative burdens

Changes in compliance costs have been estimated using HMRC’s Standard Cost Model of administrative burdens. There might be some reading-and-understanding costs of implementing a new process, which are regarded as trivial.

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Transitional Provision

The estimated reduction in admin burden is given in the following table, generated by the fall in the number of businesses which no long need to claim capital allowances from the general pool.

Y1 Y2 Y3 Y4 Y5

AdminB

(£m)

0 6 5 5 4

Permanent Provision

The reduction in the admin burden results from the reduction in the number of businesses having to claim capital allowances from the general pool. This is the number of businesses affected, multiplied by the average admin burden of each business as provided in the Admin Burden Database.

Y1 Y2 Y3 Y4 Y5

AdminB

(£m)

0 6 6 7 7

Specific Tests

Competition Assessment suggests that the measures have no adverse effect on competition.

For Small Firms Impact Test, these measures with permanent or transitional changes will benefit small firms particularly.

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Specific Impact Tests: Checklist

Use the table below to demonstrate how broadly you have considered the potential impacts of your policy options.

Type of testing undertaken

Results in Evidence

Base?

Results annexed?

Legal Aid No No

Race Equality No No Disability Equality No No Gender Equality No No Human Rights No No Rural Proofing No No 26

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Summary: Intervention & Options

HMT

Title:

Impact Assessment of changes to R&D tax credits to

ensure State aid compatibility

Stage: Final proposal Version: 1.0 Date: 12 March 2008

Related Publications:

http://www.hm-treasury.gov.uk/consultations_and_legislation/ria/consult_ria_index.cfm

Contact for enquiries: Dan York-Smith Telephone: 02072704424

Research and development (R&D) tax credits aim to encourage companies to spend more on R&D in order to promote investment in innovation. Three changes are needed to the R&D tax credit scheme for companies that are small and medium sized enterprises (SMEs) and the vaccine research relief (VRR) scheme. At Budget 2007, the Government announced changes to the schemes, notably to increase the rate of the relief given, and, as a consequence, the small changes described below are necessary to ensure that the revised, more generous, reliefs still fall within the European Commission’s state aid guidelines.

The package is intended to ensure that the UK can obtain EC approval in respect of recently announced changes to the SME R&D and VRR schemes. Budget 2007 announced increases in the rate of the tax relief from 150% to 175%. The three changes described in this document will enable this Budget announcement to be activated and make additional relief available to companies.

What policy options have been considered? Please justify any preferred option. 1. Do nothing - in which case the EC guidelines would not be satisfied.

2. Continue operating a two-tier scheme complying with EU state aid rules, which requires:

• A cap on relief available to any single R&D project at EUR 7.5m

• That relief is not given to companies in difficulties

• Large companies claiming under the Vaccine Research Relief scheme to declare that the relief has had an incentive effect.

When will the policy be reviewed to establish the actual costs and benefits and the achievement of the desired effects? A Compliance Cost Review is expected to be carried out once the policy has bedded in (typically between 1 and 3 years after implementation).

Ministerial Sign-off final proposal/implementation Impact Assessment:

I have read the Impact Assessment and I am satisfied that (a) it represents a fair and

reasonable view of the expected costs, benefits and impact of the policy, and (b) the benefits justify the costs.

Signed by the responsible Minister:

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Summary: Analysis & Evidence

Policy Option: Description: changes to R&D tax credits to ensure State aid compatibility

ANNUAL COSTS

£ 260k-630k 5

(excluding one-off)

Description and scale of key monetised costs by ‘main affected groups’ The estimated one-off cost almost all reflects

companies familiarising themselves with changes and accounts for half of the total cost. The average annual cost is split between all companies checking they are a going concern, a few companies checking the cap and a few large companies declaring a VRR incentive.

£ 60k Total Cost (PV) £ 490k-830k

COSTS

Other key non-monetised costs by ‘main affected groups’

ANNUAL BENEFITS

One-off Yrs

£

(excluding one-off)

£ Total Benefit (PV) £

BENEFITS

Other key non-monetised benefits by ‘main affected groups’

The main benefit from these changes is allowing companies to continue to claim support under the SME R&D tax credit and VRR schemes.

Key Assumptions/Sensitivities/Risks Changes are assumed to enable companies to continue to claim support under the SME R&D tax credit and VRR schemes, with no significant Exchequer effect. Present value estimates assume a 3.5% discount rate.

Price Base

Year 2008 Time Period Years 5 Net Benefit Range (NPV)

£ 490k-830k (cost) NET BENEFIT

(NPV Best estimate)

£ 660k (cost)

On what date will the policy be implemented? to be decided

What is the total annual cost of enforcement for these organisations? £

Does enforcement comply with Hampton principles? Yes/No

Will implementation go beyond minimum EU requirements? No

What is the value of the proposed offsetting measure per year? £ N/A What is the value of changes in greenhouse gas emissions? £ N/A Will the proposal have a significant impact on competition? No Annual cost (£-£) per organisation

(excluding one-off) Micro10 Small10 Medium510 Large2,400

Increase of £ 25k Decrease of £ Net Impact £25k increase Key: Annual costs and benefits: Constant Prices (Net) Present Value

Impact Assessments. March 2008

Impact Assessments

March 2008

March 2008

Impact Assessments

CONTENTS

Consultation Stage

Final Stage

Page

Summary: Intervention & Options

HMRC

Impact Assessment of making changes to the collection of

National Insurance Contributions from the self-employed

Summary: Analysis & Evidence

Summary: Analysis & Evidence

Summary: Analysis & Evidence

Evidence Base (for summary sheets)

Rationale for intervention

Policy objective

Policy Options Considered

Policy Option 1: Including Class 2 arrears within Self Assessment statements

Exchequer Yield/Costs

Policy Option 2: Reducing the number of payment dates and/or aligning payment due

dates more closely between Class 2 and 4

Business costs and benefits

HMRC costs and benefits

Exchequer Yield/Cost

Policy Option 3: Changing the consequences for late payment of Class 2 contributions

Business costs and benefits

HMRC costs and benefits

Exchequer Yield/Cost

Combining the options

Potential Impacts of proposals

Competition

Small Firms

Human Rights

We have not identified any issues that impact on Human Rights.

Specific Impact Tests: Checklist

Type of testing undertaken

Results in

Evidence Base?

Results annexed?

Summary: Intervention & Options

HM Treasury

Impact Assessment of The Saving Gateway

Summary: Analysis & Evidence

Evidence Base (for summary sheets)

Consultation to date and Pilots

Eligible Population

Admin Burdens

•

Competition Assessment

Small Firms Impact Test

Gender Equality

Disability Equality

Specific Impact Tests: Checklist

Type of testing undertaken

Results in

Evidence Base?

Results annexed?

Summary: Intervention & Options

HM Treasury

Impact Assessment of provision to allow businesses to

write off small amounts of unrelieved expenditure on

plant and machinery

When will the policy be reviewed to establish the actual costs and benefits and the achievement of the

desired effects?

1 – 3 years after implementation the Government will review the compliance cost impact of the

Summary: Analysis & Evidence

Summary: Analysis & Evidence

.

Summary: Analysis & Evidence

Evidence Base

Value of pools

Pool value

Number of pools

£0 2,938,000

£1 to £1,000

618,000

£1 to £2,000